Warner Bros. Discovery CEO David Zaslav. Kevork Djansezian/Getty Images The influential shareholder proxy advisory firm Institutional Shareholder Services recommended that Warner Bros. Discovery shareholders reject the golden parachute pay packages for CEO David Zaslav and other top executives at the company, noting the “extraordinary” nature of the agreements.
But ISS also urged shareholders to approve WBD’s sale to Paramount Skydance, writing that “the proposed transaction is the result of a competitive sales process and public bidding war between NFLX and PSKY, which provides shareholders comfort that the proposed deal is the best available.”
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With regard to the golden parachutes, shareholders have an advisory vote, meaning that even if they reject it, the payments may still go through. That said, companies are often responsive to shareholder concerns around pay.
ISS notes that the cash severance for top executives other than Zaslav are “reasonable,” in both their size and in the fact that they are “double trigger,” meaning that two things have to happen in order for them to receive the payments: A sale triggering a change in control, and the executive leaving for “good reason” or terminated without cause.
Instead, ISS focuses on Zaslav’s potential $886 million payout, a big chunk of which is comprised of what ISS calls a “problematic” excise tax gross-up approved by the board last month.
“Excise tax gross-ups represent an extraordinary cost that are inconsistent with common market practice, and most companies have eliminated such entitlements as a matter of good governance,” ISS writes in its recommendation. “The value disclosed in the golden parachute table for CEO Zaslav at over $886 million represents one of the highest golden parachute estimates ever observed,” though the proxy notes that this value may decline depending on merger timing.
Indeed, Zaslav is unlikely to receive that full amount. As shares continue to vest ahead of close, the value of the gross up will decline, and WBD said that if the deal closes early next year the gross up would be zero. That said, Paramount also agreed to pay a daily “ticking fee” to WBD shareholders if the deal doesn’t close by the end of Q3, so that could also increase his payout. In total expect a payout closer to $600 million, though it is still very much TBD.
The advisor firm also notes that the vast majority of Zaslav’s equity is also single trigger, meaning that he will be paid as soon as a change in control occurs.
“The auto-acceleration of unvested equity is not a best practice, and the full vesting acceleration of very recently-granted equity intended to cover multiple years represents a windfall,” it adds.
ISS is among the most influential proxy advisory firms, with many institutional shareholders following its recommendations, though in high-profile deals like the Paramount deal, those investors may often make their own calls on the things being voted on.
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